HAMILTON BROTHERS GUIDE YOU THROUGH THE JARGON INFESTED FINANCE MINEFIELD!December 16, 2015
Investment in machinery is essential for operating a successful agricultural business. With allowances due to fall and interest rates on the rise, there has never been a better time to cash in on the wealth of finance deals available, because if you don’t use it…you may lose it!
The Chancellor’s Budget for 2016 revealed that the Annual Investment Allowance will fall from £500,000 to £200,000. With many expecting the allowance to drop to as low as £25,000, this announcement was somewhat of a relief. Nonetheless, that’s still a whopping £300,000 less you can claim back in tax relief and with the anticipated interest rate rise, it seems the days of a 0.5% Bank rate are numbered!
As the industry continues to battle with falling farmgate prices, the need for low rate finance has never been so crucial.
Paula Millward, Marketing Manager, JCB Finance says: “It can sometimes be off putting to discuss funding options with fears of jargon heavy forms but JCB Finance are a people’s business.”
At Hamilton Brothers we have numerous interest free deals available on new and second hand machinery and as Financial Conduct Authority (FCA) regulated advisors, our team are always on hand to help. With so many options available from hire purchase to contract hire we ask our providers at AGCO, JCB and Rural Finance to lend a hand by explaining each option in the simplest terms to ensure you make exactly the right choice for YOU!
Hefty Savings with Hire Purchase
Hire Purchase (HP) is historically the most popular option by which machinery is financed over a period of years.
Peter Court, ACGO Finance Area Manager says “Funding capital expenditure via HP ensures bank facilities and cash reserves are not eroded. AGCO Finance offer cash flow matched repayment structures.”
- Machinery is re-paid in monthly, bi-annual or annual instalments with the flexibility of seasonal payments to suit your cash flow.
- VAT is paid at the time of signing the agreement.
- The final payment will also include an additional sum where the title of the asset transfers to the customer.
- By spreading the cost of the purchase, machinery starts paying for itself through income or savings generated by the business.
- HP customers are entitled to claim 100% of the available capital allowances.
Lighten your Load with a Lease
Under an Operating Lease, the basic principle and flexibility of repayments are the same as HP but VAT is applied to each of the ‘rentals’. The biggest single factor of a Lease Agreement is that ownership shall not pass to the customer until it is sold on or traded in to another party.
“Leasing is a cost effective alternative to HP for small to medium sized businesses. At Rural we work with ten different finance companies to secure numerous attractive options” says Andrew Glover of Rural Finance.
- Unlike HP, ownership remains with the Finance Company, which in turn claims capital allowances and this is reflected in the instalments.
- VAT is applicable to each rental.
- Rentals are 100% allowable against taxable profits.
- When the initial rental period has matured, the agreement then transfers to the secondary rental period. At this point Finance Companies will charge a nominal percentage of the original sale value.
- Some Finance Companies can re-coup a percentage of the sale value in the event of the machine being sold or traded in. This is more the exception than the rule, but will be included in the small print and explained to you when signing the agreement.
Cut Costs with Contract Hire
Contract Hire is ideal for businesses that require a machine with scheduled repairs and maintenance (R&M) at a fixed cost over a set period of time.
Jim Steel, our Bishopton General Manager says “When customers tell me there are two types of bills they have no control over – namely Veterinary bills and machinery repair bills I have only one answer – Contract Hire!! Although traditionally an unpopular option for agricultural businesses it is nonetheless a perfectly viable one because benefits and savings can be made from an extended warranty and servicing package”.
- Customers pay a set rental amount with VAT due upon each rental.
- The anticipated hours and term period are crucial in calculating the hire repayment amount. An excess charge will be applied if the hours surpass that of the agreed term, which has a negative effect on the pre-agreed residual value of the asset and the repair and maintenance contract.
- Customers benefit from an all-inclusive figure for the use of machinery and a repair and maintenance package. With 29 manufacturer trained technicians plus a fleet of mobile service vans, problem free hire is guaranteed at Hamilton Brothers!
- There is no large capital outlay for equipment and payments can be offset against taxable profits.
The best option for you depends on your personal circumstances but whether you opt for Hire Purchase, Leasing or Contract Hire, it is always advisable to seek independent advice from an Accountant or Financial Advisor prior to making your decision.
Fantastic 0% Finance Deals!
Finance your new dream machine for 2016 with these interest free finance finance deals on new and used machinery but, HURRY, they are available for a limited time only!
Find out more about 0% finance deals on agricultural machinery from Hamilton Brothers.
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